In its monthly survey of fund managers, Merrill Lynch says fear among fund managers has pulled back from the brink. From the report:
Ingredients for a rally in place; fiscal policy is the trigger
After the extreme pessimism of the past two months there is evidence of investors pulling back from the brink in December’s survey. Fund managers see the rate of deterioration in the global economy as slowing. With risk aversion showing signs of moderating (from very extreme levels), cash levels at the highest since 2001, and some belief that monetary policy is starting to have an impact, running textbook defensive asset allocations going into New Year may start to carry greater risk. Possible news flow on fiscal stimuli could trigger a sharp rally.
Investors hunker down for “below-trend” 2009
As investors start to look into 2009, 88% of respondents are hunkering down for a year of ‘below-trend’ growth and ‘below-trend’ inflation. Against such a backdrop there are only four global sectors that they wish to overweight: healthcare, telecoms, utilities, and consumer staples (a sector that many regard as overvalued). For the third month running a majority of fund managers believe that equities are undervalued. But they are still worried that it is a value-trap – and when it comes to asset allocation they still prefer bonds to stocks. Maybe this is because a net 87% of managers believe that consensus earnings estimates for 2009 are still ‘too high’.
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